Charitable Organizations

Charitable Organizations in the United States

Introduction to Charitable Organizations

Main Concepts

Private inurement

Public beneﬁt

Private beneﬁt

Public charities

Private foundations

In Jersey, Channel Islands, The Foundations (Jersey) Law 2009 allows for the creation of foundations having purposes which are charitable, non-charitable, or both charitable and non-charitable.

Nonproﬁt

Tax exempt

Charitable

Legal Framework

Legal structures

Nonproﬁt corporations

Trusts

Unincorporated associations

Limited liability companies

Hybrid entities

In response to legal constraints on for-profit corporations and on charities, a number of states are experimenting with hybrid entities. (Strom, “A Quest for Hybrid Companies that Profit, but Can Tap Charity,” New York Times (October 13, 2011)) California, for example, recently adopted a statute permitting so-called flexible-purpose corporations, new companies which are part social benefit and part low profit enterprises. These entities can raise private capital and can have shareholders (nonprofit corporations typically do not), which can receive a share of profits on an ongoing basis or a share of the corporate assets if the corporation liquidates. Significantly, directors are not held to a high standard of fiduciary duty towards shareholders to maximize profit if they deliberately engage in enterprises which have social benefits. Michigan, for example, permits so-called low-profit, limited liability companies, referred to colloquially as L3C’s, which are designed to achieve the same purposes but using a limited liability company structure, rather than a corporate structure. As will be discussed in greater detail, infra, these entities also appear to be a “workaround” of limits on public charities and private foundations utilizing charitable resources for for-profit enterprises.

Taxation

For information on federal charitable income tax deduction, exemptions and federal estate and gift tax deductions, see here.

Resources

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